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How to accept credit card payments as a small business


Allowing your customers to pay by credit card can be a game-changer for small businesses. Your invoices can be paid instantly, you can easily take payment online or in-person, and your customers get the benefit of a simplified checkout process (plus the credit card points they would otherwise miss out on).

Of course, credit card payments aren't free–banks and credit card companies charge a processing fee in exchange for the benefits outlined above. So, what's the best strategy for incorporating credit card payments into your small business? Here are the three basic options we'll explore:

1) Absorbing the fees as a cost of doing business

2) Increasing your rates to cover the cost of the fees

3) Adding a credit card surcharge to offset the fees

How do credit card processing fees work?

Let's start with the basics–how do credit card processing fees work? At Durable, our fees are pretty simple. For every invoice that's paid via credit card, you can expect the following fees to apply:

3.1% processing fee

$0.30 transaction fee

To put that into context, if you issue a $100 invoice and it's paid via a credit card you will net: $100 - ($100 * 3.1%) - $0.30 = $96.60.

You will record $100 in sales, and $3.40 in Expenses or Cost of Sales (we cover this in more detail in Bookkeeping Basics).

For some businesses, the speed and ease of credit card payments might make these fees acceptable, so they will choose to simply absorb these fees as a cost of doing business. For others, the decrease in margin could be difficult to stomach. So, let's look at the other two options.

Increase your prices to cover credit card fees

This is a pretty straightforward solution that many businesses naturally migrate towards. If you anticipate that the majority of your customers will be paying by credit card, and you know that you will be losing 3.1% of each sale to credit card fees, simply increase your stated rates by at least 3.1% to cover the cost.  

With this strategy, you also have the option of offering your customers a "discount" by paying in cash, which can be a valuable sales tool by itself. If you're increasing rates for your existing customers, we recommend that you proactively communicate this change to them, and offer them the discount option above to retain their original rate.

Add an automatic credit card surcharge to pass the cost on to your customer

With Durable, you have the option to automatically apply a credit card surcharge on your invoice. Essentially, this allows you to add the credit card fees on top of the invoice amount and your customer pays it. In this scenario, the math looks a bit like this:

Invoice Amount: $100

Credit Card Surcharge: $3.40

Total Invoice Amount: $103.40

You will record $103.40 in Sales and $3.40 in Expenses or Cost of Sales, and you will net $100.

While this is similar to the previous solution, the main difference here is that you won't be required to make any changes to your stated rates or estimates, and your customer will be made aware of the credit card fees explicitly. You can also choose to apply the surcharge to some invoices, but not to others.

Note: in Connecticut and Massachusetts, credit card surcharges are prohibited by law.

Why you should consider accepting credit card payments

At Durable, we encourage every small business to accept credit card payments. If you're still on the fence, here's another look at the benefits:

  • Your customers will be able to pay quickly and easily from their phone or computer
  • Your invoices will be paid faster and payment will be automatically recorded
  • You can quickly and easily send payment links via email or SMS
  • Your cash flow will be more predictable

Your customers want the ease and convenience of credit card payments (not to mention the points), and with the options outlined in this guide, you're equipped to implement them in a way that makes sense for your business.

If you haven't already, sign up for early access to Durable here and start accepting your first payments within minutes.

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